The economic crisis that engulfed Europe was partially due to a failure to correctly measure and respond to the growth of economic inequality. The evidence from many developed countries is that increasing numbers of people at work cannot adequately meet their material needs. Most people’s wages have stagnated while a greater share of income goes to those in the top ten per cent of society and to those who hold financial assets. Meanwhile, the safety net provided by public services has weakened in many cases.

The OECD, IMF and World Economic Forum have all now recognised the challenge that inequality poses to the economy, as it damages consumption and undermines social cohesion.

ECONOMIC INEQUALITY IS MORE THAN JUST INCOME INEQUALITY

Income inequality, measured in terms of the Gini coefficient or income ratios, is important, but it only tells part of the story. A much more robust concept is inequality in net economic benefit.

An overly narrow focus on incomes has led to meaningless comparison between countries on the basis of income per capita or headline income tax rates without reference to tax reliefs or to the value of goods and services provided via taxation rather than purchased by individuals from their net incomes.

The value of public services can be priced in a similar way to insurance. Not everyone will need to use services like healthcare to the same extent, but everyone has an economic benefit from the ‘insurance’ provided by affordable access to these services.

Unfortunately, attempts to address economic inequality are too often focused on the ‘quick win’ of increasing net incomes, including through tax cuts, rather than the more complex and more important issues like the cost of living and the real economic value of public services.

A recent report from TASC entitled “Cherishing All Equally” *, is one attempt to show the range of variables that need to be measured.

Europe needs a detailed cost of living index (not just inflation) alongside comprehensive accounting for tax reliefs and an index of the value of public services provided in each state. Only then can meaningful comparisons be made between the economic and social policies of different European countries.

SOCIAL EUROPE SHOULD MEET EVERYONE’S MATERIAL NEEDS

There is a common set of needs that every human being requires, although the quantity of each item will vary depending on people’s circumstances and number of dependents. These material needs include food, clothing, housing, household goods, water, sanitation, energy, transport, healthcare, childcare, education, telecommunications and a modest level of savings.

A focus on meeting everyone’s needs should provide Europe with a new impetus for innovation and social development as a replacement for the slavish drive for GDP growth regardless of its ecological and social costs.

There is no greater economic inequality than between people who cannot meet their basic needs and those who have more than they need. A guarantee of a modest level of material security to meet basic needs should be the cornerstone of Social Europe.